MODULE 5

Goods and Services Tax- Evolution of GST in India Meaning - Definitions - Objectives -
Features - Basic Concepts- Challenges and Opportunities – Dual GST- Applicability of CGST
and SGST- indirect taxes include under GST.

Goods and Service Tax (GST)

GST (Goods and Service Tax) is an indirect tax which is levied by government on the
supply of goods and services. The Indian Government had introduced this tax on 1st July
2017.
GST is termed as one nation-one tax as it has unified the whole taxation system. Since GST is
a consumption based tax, tax revenue will be levied and collected by the consuming state,
and this helps the consuming state to protect their tax base.

Dual GST: India follows a dual GST model, wherein both state and the central government
imposes GST on the supply of goods and services concurrently. In India GST comprises of:
CGST  Imposed and collected by Central Government on intrastate supplies or on
transactions related to goods and services within a state.

SGST  Imposed and collected by State Government or Union Territories with

legislative assembly, i.e. Delhi, Pondicherry and Jammu and Kashmir on
intrastate supplies or on transactions related to goods and services within the
state. . It gets charged along with the CGST.

UTGS  Imposed and collected by Union Territories without Legislative Assemblies on

T intrastate supplies or on transactions related to goods and services within the
state/ union territory. . It gets charged along with the CGST.

IGST  Imposed and collected by the central government on all interstate supply of
goods and services or on transactions related to goods and services between the
states. It is the sum total of CGST and SGST/UTGST. The Taxes charged under IGST
are shared both by the centre and state.

 Integrated GST
Integrated GST or IGST shall be levied and collected only on the interstate supply of Goods
and services. IGST shall also be applicable on import of goods or services in India. The IGST
rate shall be equal to combined rate of CGST and SGST.
Input Tax Credit (ITC) of IGST shall be available against CGST and SGST.

Types of GST
There are four different types of GST levied on the goods and services in India that are as
follows:

 Central Goods and Services Tax (CGST)

 State Goods and Service Tax (SGST)
  Union Territory Goods and Service Tax (UGST)
 Integrated Goods and Service Tax (IGST)

What is not covered under GST?

The following items are excluded from the purview of GST.
 Alcohol for human consumption: The State Government has the power to impose
tax on Alcohol.
 Petroleum Products: The date from which GST will be imposed on five petroleum
products, i.e. crude oil, diesel, petrol, natural gas and ATF, will be decided by the
GST council.
 Tobacco: Excise duty is levied on the manufacturing of tobacco-based items like
cigarettes, bidi, and other chewing tobacco products at different rates. However,
additional cess is imposed on the tobacco-related products under GST.
 Electricity: The State Government has the power to impose tax on Electricity.

Salient Features of GST

1. 1.National Indirect Tax:- The Goods and Services Tax (GST) is a national
indirect tax that applies to the manufacture, sale, and consumption of goods
and services in India.
2. The GST takes the place of various taxes imposed by the federal and
state governments.
3. Supply as a base:-Applicable on the supply side, GST is levied on the
supply of goods or services, as opposed to the manufacturing, selling, and
providing services.
4. Destination-Based Tax GST is founded on the principle of destination-
based consumption taxation, as opposed to the current approach of origin-
based consumption taxation.
5. The 101st Constitutional Amendment Act gave it legal status.
6. Single Tax:- It's an indirect tax for the entire country, similar to "One
Nation, One Tax," with the goal of making India a unified market.
7. It is a single tax on the supply of goods and services across the product
life cycle, from the maker to the customer.
8. Electronic filing of returns:- Electronic filing of returns by different class of
persons at different cut-off dates is made possible.
9. It is only calculated in the "Value addition" at any point throughout the
production of goods or services.
10. The ultimate customer will just pay his portion of the tax, rather than the
full supply chain as was previously the case.
11. There are three types of taxes that apply under this system: CGST, SGST,
and IGST are three different taxes.
a. CGST: This is the tax levied by the federal government on intra-state
transactions (e.g., a transaction happening within Uttarakhand)
b. SGST: The tax levied by the state government on intra-state
transactions (e.g., a transaction happening within Uttarakhand)
c. IGST: It is a tax levied by the federal government on interstate
transactions (e.g., Uttarakhand to Uttar Pradesh)
 d. UTGST: This is the tax levied by the federal government on intra-union
territory transactions for UTs without governing bodies. (e.g., a
transaction happening within Chandigarh or Daman & Diu)
12. Dual GST:- It is a dual GST in which the Centre and the States both impose a
tax on a shared basis at the same time. The GST charged by the Centre is
known as Central GST (CGST), while the GST levied by the States is known
as State GST (SGST).
13. Integrated GST:- Imports of products or services would be classified as
interstate supplies, subject to the Integrated Goods and Services Tax
(IGST) in addition to customs taxes.
14. GST rates will be agreed upon by both parties: CGST, SGST, and IGST are
levied at rates that the Centre and the States agree on. The rates are
announced based on the GST Council's recommendations.
15. Multiple Rates: Initially, GST was levied at four different rates: 5%, 12%,
16%, and 28%. The GST council creates a schedule or list of items that would
fall under these different slabs.
16. The GST Council:- On the top is the GST council whose head is India's
finance minister, has the authority to decide on any topic relating to GST.
17. The 2016 Act mandates that Parliament reimburse states for any revenue
losses incurred as a result of the GST implementation
18. Anti-profiteering clause:- An anti-profiteering clause has been provided in-
order to ensure that business passes on the benefit of reduced tax incidence
on goods or services or both to the customers.

Benefits / Opportunities of GST

GST is a destination-based indirect tax imposed on the supply of goods and services. The
pre-GST era had a lot of shortcomings that required the uniformity of taxes. GST is a great
initiative taken by India. It is a win-win situation for the entire country. It is beneficial for the
whole country- its stakeholders, businessmen, consumers and government. GST has brought
a transparent system for the whole country that allowed the credit of taxes paid. Some of
the benefits of the GST regime are as follows:
1. Unified National Market
GST has made India a unified national market with standard tax rates and procedures. This
dynamic common market will substantially improve the ease of doing business. It broke the
barriers that were present due to the multiplicity of taxes.
2. Competitive
With the introduction of GST in India, the cost of goods and services has decreased. It gave
an advantage to the country by making the goods and services competitive at the
International level. With a single tax to be paid =, manufacturers will become more
competitive and this could lead to growth in exports.
3. Elimination of Cascading effect of taxes
Cascading of taxes happens when a tax is imposed on every stage of production. This
practice ultimately increases the value of goods that leads to inflation . With the GST
implementation, suppliers can take credit on the taxes paid to the government. This
resulted in reducing the negative impact of the previous tax structure like eliminating
double taxation and improve resource allocation.
4. Benefit to stakeholders
GST is a single tax that subsumed various taxes and common people of the society. Now
suppliers don't have to pay unnecessary taxes.
5. Single tax
Earlier, there were different taxes imposed on goods and services. With the origin of GST,
only one tax is leviable on goods as well as services.
6. Automated process
Earlier, everything was manual which was a lengthy process. With the origin of GST,
every process is automated to reduce the human involvement. Automation reduces the
time taken by the taxpayer on filing the returns, registration, refunds and tax payments etc.
7. Increased economic activity and investment
The cost of goods has declined with the introduction of GST. As goods are competitive in the
international markets, exports and investment are rising. Demand is huge due to the low-
cost products. People spend more when there is an increase in demand. This ultimately
increases economic activity and investment by generating more employment.
8. Reduction in compliance costs
Harmonisation od tax rates along with the seamless input tax credit and a sound IT
infrastructure is expected to lead to reduced compliance cost. As the taxpayers services like
registration, payments, returns, etc. will be available online, the compliance process would
become simpler.
9. Elimination of multiple taxes and Double taxation
Under the earlier regime, certain transactions were subject to double taxation and taxed as
both goods and services. GST subsumed the majority of taxes at Central and State levy into
one single tax. It also tackled the highly deputed issues related to double taxation.
10. Increase in Government revenue
GST would generate more tax revenue for both Central and State governments.
Government revenue jumped up to 24% with the introduction of GST.
11.Encourages savings and investment:- As GST is a tax on consumption and not on income,
the tax system inherently encourages savings and investment .
12.Improved Efficiency of Logistics:- Due to GST implementation, restriction on Inter-State
movement of goods is lessened and the logistics sector is anticipated operational efficiency
by setting up warehouses in locations that would help in reaching customers faster and
with reduced cost.
13.Regulation of unorganised sectors and composition scheme for small business sectors.
14.Benefits to consumers:- Average tax burden on companies is expected to come down,
which may result in reduced prices and hence it benefits the customers.

Objectives of GST
The main objectives of GST are as follows:
 It helps create a common market in India with a uniform taxation system and curb
tax evasion in the country. The laws for GST are far more stringent compared to the
erstwhile indirect tax laws. The aim is to have a nationwide surveillance system
under GST, making it easier to catch defaulters and tax evaders.
 It removes the cascading effect of the indirect taxes on a single transaction. It also
allows the setting off for prior taxes that are related to the same transactions in the
form of the input tax credit. Under GST, the tax is applicable only on the net value
added during each stage of the supply chain.
 The government aims to reduce the need for multiple documentation under the
previous taxation system by introducing a consolidated tax like GST. The idea is to
help companies with an uncomplicated tax filing procedure that will improve their
efficiency and cut down the overall costs associated with business processes.
 It helps to subsume most indirect taxes into a single taxation system that reduces
the burden of compliance for taxpayers and eases the government’s tax
administration process. The main aim of this taxation system is to simplify the entire
process of paying taxes and simplify compliance. Compared to the erstwhile indirect
taxes, almost the whole GST process, including registration, returns filing, refunds
and e-way bill generation, has shifted to the online mode.
 One of the primary objectives of GST is to widen the tax base in India. Most of the
erstwhile indirect taxes had their threshold limits for registration based on the
turnover of a business. Under GST, there is greater scope for an increase in the
number of firms coming under the tax registration net because it includes all
transactions related to goods and services in the country.

GST Challenges | Goods and Service

Tax
GST or Goods and Service Tax is a comprehensive indirect tax on
manufacture, sale and consumption of goods and services throughout
India. Goods and Service Tax was introduced as The Constitution (101th
Amendment) Act 2016, following the passage of Constitution 122nd
Amendment Bill. GST will be the biggest reform in Indian taxation since
1947, but various challenges has been estimated for its successful
implementation.

 Consent of States: For implementing, it is critical that GST bill is

passed by the respective state Governments in state assemblies so
as to bring majority. This is a herculean task.
 Revenue Neutral Rate (RNR): It is one of Prominent Factor for its
success. Hence, through RNR Government is to ensure that its
revenue remains the same despite of giving tax credits.
 Threshold Limit in GST: While achieving broad based tax
structure under GST, Both empowered committee and Central
Government must ensure that lowering of threshold limit should not
be a “taxing” burden on small businessmen in the country
 Increased cost due to software purchase. : Government has
already incorporated Goods and service tax network (GSTN). GSTN
has to develop GST portal which ensure technology support for
registration, return filing, tax payments, IGST settlements etc. Thus
there should be a robust IT backbone
 Extensive Training to Tax Administration Staff: GST is
absolutely different from existing system. It, therefore, requires
that tax administration staff at both Centre and state to be trained
properly in terms of concept, legislation and Procedure.
 Numbers of enactments of statutes: There will two types of GST
laws, one at a centre level called ‘Central GST (CGST)’ and the
other one at the state level – ‘State GST (SGST)’. As there seems to
have different tax rates for goods and services at the Central Level
and at the State Level, and further division based on necessary and
other property based on the need, location, geography and
resources of each state.
 Additional Levy on GST: The Purpose of additional Levy is to
compensate states for loss of revenue while moving to GST. We
acknowledge that fundamental purpose of GST is to make “INDIA”
as one state where inter-state movement of goods is common. In
this situation, it would defeat the very purpose of GST in the
country.
 Clubbing Taxes: The biggest challenge of GST implementation is
bringing all the indirect taxes under one roof, which is the biggest
feature of GST. There has been opposition asking to including
purchase tax by a few states. Other states are reluctant about
alcohol, tobacco products coming under GST. This is due to the fact
that a major chunk of state revenue is derived from these products.
  Statutory Requirements: As the imposition of GST will be
delegated to both state and central government, the constitution
has to grant powers to both through an amendment. It is seen as a
difficult task as the law expects at least two-thirds majority from
the members of the parliament and that isn’t easy given the current
political scenario of the country.
 Make-shift Arrangements: State governments are demanding
compensation from the central government as they foresee a major
dent in the revenue due to CST losses. This is asked for the first 5
years after the implementation of GST, for which the central
government has agreed to 3 years. A final conclusion is yet to be
drawn.
 Framework For Tax Disputes: There has to be a uniform legal
procedure for tax disputes and litigations to avoid any confusion.
 Defining Inter-State Transactions: With the transportation
services available everywhere, the place of sale and consumption
may not be the same. This makes it difficult to go forward with
revenue allocation. Hence, it becomes important to define
procedures to tackle such problems.
 Infrastructure For The Collection Process: Proper infrastructure
has to be designed to track the movement of goods and services
between states, collection and monitoring revenue, identify
defaulters etc.
 Determining GST Rates: This is a major step in ensuring the
success of GST. Arriving at rates which are conducive to both the
government and public is will be a daunting task.

When did GST start?

Several countries have already established the Goods and Services Tax. In Australia, the system was
introduced in 2000 to replace the Federal Wholesale Tax. GST was implemented in New Zealand in
1986. A hidden Manufacturer's Sales Tax was replaced by GST in Canada, in the year 1991. In
Singapore, GST was implemented in 1994. GST is a value-added tax in Malaysia that came into effect
in 2015.

History of GST in India

 2000: In India, the idea of adopting GST was first suggested by the Atal Bihari Vajpayee
Government in 2000. The state finance ministers formed an Empowered Committee (EC) to
create a structure for GST, based on their experience in designing State VAT.
Representatives from the Centre and states were requested to examine various aspects of
the GST proposal and create reports on the thresholds, exemptions, taxation of inter-state
supplies, and taxation of services. The committee was headed by Asim Dasgupta, the finance
minister of West Bengal. Dasgupta chaired the committee till 2011.

 2004: A task force that was headed by Vijay L. Kelkar the advisor to the finance ministry,
indicated that the existing tax structure had many issues that would be mitigated by the GST
system.
 February 2005: The finance minister, P. Chidambaram, said that the medium-to-long term
goal of the government was to implement a uniform GST structure across the country,
covering the whole production-distribution chain. This was discussed in the budget session
for the financial year 2005-06.

 February 2006: The finance minister set 1 April 2010 as the GST introduction date.

 November 2006: Parthasarthy Shome, the advisor to P. Chidambaram, mentioned that

states will have to prepare and make reforms for the upcoming GST regime.

 February 2007: The 1 April 2010 deadline for GST implementation was retained in the union
budget for 2007-08.

 February 2008: At the union budget session for 2008-09, the finance minister confirmed that
considerable progress was being made in the preparation of the roadmap for GST. The
targeted timeline for the implementation was confirmed to be 1 April 2010.

 July 2009: Pranab Mukherjee, the new finance minister of India, announced the basic
skeleton of the GST system. The 1 April 2010 deadline was being followed then as well.

 November 2009: The EC that was headed by Asim Dasgupta put forth the First Discussion
Paper (FDP) , describing the proposed GST regime. The paper was expected to start a debate
that would generate further inputs from stakeholders.

 February 2010: The government introduced the mission-mode project that laid the
foundation for GST. This project, with a budgetary outlay of Rs.1,133 crore, computerised
commercial taxes in states. Following this, the implementation of GST was pushed by one
year.

 March 2011: The government led by the Congress party puts forth the Constitution (115th
Amendment) Bill for the introduction of GST. Following protest by the opposition party, the
Bill was sent to a standing committee for a detailed examination.

 June 2012: The standing committee starts discussion on the Bill. Opposition parties raise
concerns over the 279B clause that offers additional powers to the Centre over the GST
dispute authority.

 November 2012: P. Chidambaram and the finance ministers of states hold meetings and set
the deadline for resolution of issues as 31 December 2012.

 February 2013: The finance minister, during the budget session, announces that the
government will provide Rs.9,000 crore as compensation to states. He also appeals to the
state finance ministers to work in association with the government for the implementation
of the indirect tax reform.

 August 2013: The report created by the standing committee is submitted to the parliament.
The panel approves the regulation with few amendments to the provisions for the tax
structure and the mechanism of resolution.

 October 2013: The state of Gujarat opposes the Bill, as it would have to bear a loss of
Rs.14,000 crore per annum, owing to the destination-based taxation rule.

 May 2014: The Constitution Amendment Bill lapses. This is the same year that Narendra
Modi was voted into power at the Centre.
  December 2014: India's new finance minister, Arun Jaitley, submits the Constitution (122nd
Amendment) Bill, 2014 in the parliament. The opposition demanded that the Bill be sent for
discussion to the standing committee.

 February 2015: Jaitley, in his budget speech, indicated that the government is looking to
implement the GST system by 1 April 2016.

 May 2015: The Lok Sabha passes the Constitution Amendment Bill. Jaitley also announced
that petroleum would be kept out of the ambit of GST for the time being.

 August 2015: The Bill is not passed in the Rajya Sabha. Jaitley mentions that the disruption
had no specific cause.

 March 2016: Jaitley says that he is in agreement with the Congress's demand for the GST
rate not to be set above 18%. But he is not inclined to fix the rate at 18%. In the future if the
Government, in an unforeseen emergency, is required to raise the tax rate, it would have to
take the permission of the parliament. So, a fixed rate of tax is ruled out.

 June 2016: The Ministry of Finance releases the draft model law on GST to the public,
expecting suggestions and views.

 August 2016: The Congress-led opposition finally agrees to the Government's proposal on
the four broad amendments to the Bill. The Bill was passed in the Rajya Sabha.

 September 2016: The Honourable President of India gives his consent for the Constitution
Amendment Bill to become an Act.

 2017: Four Bills related to GST become Act, following approval in the parliament and the
President's assent:

o Central GST Bill

o Integrated GST Bill

o Union Territory GST Bill

o GST (Compensation to States) Bill

The GST Council also finalised on the GST rates and GST rules. The Government declares that the GST
Bill will be applicable from 1 July 2017, following a short delay that is attributed to legal issues